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Archives: Bank of America’s debit card fee could backfire

Originally published in October 2011Simon Nguyen

Free checking is no longer free. Bank of America’s new monthly debit card fee is the latest attempt by the financial institution to squeeze a little more out of its customers in these difficult economic times. The maneuver is facing a backlash from both government leaders as well as consumers, who may be tempted to leave the struggling bank in favor of credit unions and community banks. In an interview with ABC News, President Barack Obama specifically cited BofA’s debit card fee as an example of why more robust financial oversight is urgently needed.

The reason so many people are upset with Bank of America’s debit card fee is because it is seen as a breach of trust. The idea of free checking is that consumers will place their capital in the banks at zero interest. The banks can freely use these funds to lend or invest. In exchange, consumers will have quick access to their money through means like ATMs, checks and debit cards. By adding a monthly debit card fee, Bank of America is perceived as not fully honoring its side of the bargain.

Debit card fee is the latest in a series of measures taken by major banks to raise revenue. Financial institutions are using new fees to offset big losses from investments and bad mortgage loans. Unfortunately, the debit card fee could backfire on Bank of America similar to how Netflix has lost one million subscribers following its price hike. Credit unions and community banks have made no qualms about luring customers away from big financial institutions. The new debit card fee may be the last straw for many BofA’s customers, who have already had to contend with increased fees the last couple of years.

If a substantial customer exodus does occur, Bank of America will have several big problems on its hands. The banking giant has seen its shares plummeted over 50% in the past year due to a heap of negative headlines. The last thing Bank of America would want is for its reputation to suffer another blow.

There is also the capital problem. Bank of America’s capital situation has been put under extra scrutiny in recent months. Any significant loss of customers will cause a major outflow of capital and put BofA in a tough spot financially.